LOAN AND MERCANTILE.

New Zealand Herald, Volume XXX, Issue 9286, 23 August 1893, Page 5

LOAN AND MERCANTILE.

PARTICULARS OF THE STOPPAGE. THE NEWS IN LONDON. [FROM OCR OWN CORRESPONDENT.] London, July 1&. Deplorable as ib is that even in appearance New Zealand's turn should have come for a financial—or rather commercial—disaster, there seems reason to hope that the stoppage of the New Zealand Loan and Mercantile Agency Company may really prove to be what several of the Australian failures only pretended to be—a merely temporary suspension, and that the company may soon be in full swing again with increased vigour. It was nob until after business hours last Monday evening that) the news got abroad. The secret had been well kept, and nobody outside the directors' room had the slightest suspicion that so serious an event was so immediately impending. The announcement was made in very brief form, with the customary expression of regret: —"That consequent on the financial position arising oub of the recent suspension of several banks in Australia, they are compelled temporarily to suspend business pending the preparation of a scheme of re-construc-tion." Ib caused a very unpleasant shock in the city, and had a very marked effect on the money market next day. Even on Monday, although no idea existed that the stoppage was so near at hand, an uneasy feeling pervaded tho city, and vague disquieting rumours were prevalent that something disagreeable was looming ahead. In a few quarters, indeed, there was heard a distinct whisper that the New Zealand Loan and Mercantile Agency was in difficulty and business on the Stock Exchange was specially dull in consequence of the disturbed feeling which prevailed that trouble of some sort was impending in the future. Still nobody dreamed that the company would stop that very evening, and the news came as a sharp shock, and as the Financial Times says " was startling even to those who were best informed." The effect, however, was but transitory. New Zealand consols fell vory slightly; so did Bank of New Zealand shares, owing to this being the suspended company's bank. So, too, did the Bank of New Zealand Instates Company's debentures. The New Zealand Loan and Mercantile Agency's own shares went down 1;|, and its fully-paid £25 shares and the debentures and debenture stock of tho company 6J. So fur as I can judge the passing cloud will soon disappear, provided that the statements which have been put forward on behalf of the company prove on investigation to be thoroughly well founded. COMMENTS OF THE PRESS.

The reception of the news by the London papers, which make a speciality of finance, was various and characteristic. • I need hardly say that New Zealand's persistent enemy, Tho Standard, jumped at the chance of putting the case as against the colony in as unfavourable a light as possible. Under a huge heading "Great Colonial Failure," after announcing the stoppage, it says:—"To most observers this news will be no surpriso, but to those who have been foolish enough to think that New Zealand has oscaped scot free, it will be more or less of a shock. This New Zealand trading company now stops payment with liabilities on debentures and debenture stock—all held in this country—amounting to over £3,000,000. Its paid-up share capital is .€803,000. On part, of the shares, £25 per share has been called up, making them fully paid; but on .140,000 shares there is a liability of £22 10s per share, or £3,000,000. Were this money called up the debenture creditors might be paid ; but oven this is not certain, as the company has enormous trading. obligations, which might, to'some extent, take a preferential place. The failure is thus altogether a very bad one, and nothing will be gained by treating it as of no importance." The Times, on the other hand, treats the matter with more fairness, and in a spirit of judicial criticism. It says :—" The failure of the New Zealand Loan and Mercantile Agency has nob produced much effect, as, though it came as a surprise to most people, it was pretty woll known that the company had suffered a good deal through recent events in Australia. So far as we can learn New Zealand itself is quite free from serious trouble. The suspension was immediately caused by the company's inability to obtain an advance to meet pressing liabilities, it having no satisfactory securities of a tangible character available for the moment. We understand that many of tho shareholders are wealthy men, who are unlikely to allow the company to collapse altogether, although its resources are locked up in land, live stock, and buildings to a serious extent." The Financial News remarks The announcement came as a surprise ; because while other Australian institutions, one after the other, were stopping payment, the Agency Company was able to hold up its head, and it was thought that it would pass through the crisis without being seriously affected." But the paper which goes into the subject most extensively, and, on the whole, unfavourably—so far as the company, not the colony, is concerned— tho Financial Times. After making the formal announcement of the suspension, ib proceeded as follows :—" This event will not cause great surprise in the City. The institution has been somewhat irreverently dubbed ' The Pawnshop' and its various transmutations of capital—both in shares and debentures— are an interesting, if somewhat abstruse study. In the unregenerate days of the Bank of New Zealand, that institution was very closely allied with the New Zealand Loan and Mercantile—so closely, that it was sometimes difficult to distinguish tho one from the other. Bub that association is nob so close as ib was, and tho necessity for the stop now taken is stated to be duo to the banking troubles on the Australian continent. Now Zealand and its leading bank are nob involved in these troubles."

Jn a leading article on the following day the Financial Times "spread itself" very considerably over the situation. It remarked that the company's "association with the Bank of New Zealand in the bad old days left it with more thanono legacy of a troublesome character," and then went on to say " But though the balance-shcet figures approach the big total of seven millions sterling, it is not in the largeness of the amount that the importance of tho event lies so much uS in certain side issues. One of the first of these is tho fact that it carries the crisis into New Zealand. Of the Australian banks which havo failed, the Now Zealand business was nob of such importance as to seriously affect the colony, which, in fact, has to some extent benefited by the misfortunes of its' bigger neighbours. Tho present event is not only serious in itself, but "it relates to some extent to Now Zealand, and the effect on interests connected with that colony may be exaggerated from tho fact that the name of the New Zealand Loan and Mercantile Agency Company conveyed no indication of what was the fact, that a very large proportion of its business was conducted on the Australian continent. It is beyond all question that the event will produce a serious effect in New Zealand ; but the trouble which has led to it did not originate there. That it was due to the banking suspensions in Australia, as announced in the official notification, is a statement to tho literal accuracy of which no exception can betaken. But, we take it, the embarrassment so occasioned arises, not from the locking-upof funds but from tho difficulty thus put in the way of getting fresh advances, even on security. Until Australian affairs reverb to a healthy condition—which will tak<3 some years—there will bo danger to all businesses save such as are conducted on a basis of free capital." It next argues that the New Zealand Loan and Mercantile Agency does nob come under this category, and proceeds to put the case thus:'"The liquid assets formed bub a small proportion of the total, and thus the cessation or curtailment of banking facilities brought about the present crisis. According to the latest balance sheet, tho cash and the investments together did not amount to £150,000 —aperilouslysmall margin for total liabilities of nearly seven millions. .Financed up to the hilt as it was, the company could not withstand the shock of the crisis. If, like the Bank of New Zealand, with which ib was once so closely associated, it had wiped the slate clean and made a fresh start, the result might have been different. Bub while that institution took its skeletons out of the cupboard and sold them, the New Zealand Loan and Mercantile merely the locked cupboard door, and until Mon- I

day hardly admitted the skeletons' existence. It retained on its Board certain persons who were largely responsible for the admitted disasters of the bank, and for its own equally serious, though nob so frankly-admitted " lock-ups." Finally the Financial Times enters at "great length into the question of the new debentures issued by the company last year, which explicitly mortgage "the whole of the uncalled capital of the company." This it regards as likely to be the chief source of .difficulty in reconstructing the company, as it. places the company at the mercy of tho debenture-holders, and the unfavourable conclusion consequently arrived at is statod in the following terms :— " As forced realisation to meet their claims would probably be fatal, the alternative appears to lie botween out-and-out liquidation and great sacrifices on the part of creditors and shareholders in order to save, bv re-construction, the undoubtedly valuable business connection of the company." The Daily News remarks in reference to the same subject:—"Once again is in a gloomy state. The financial disease which prostrated Australian banking shows some signs of creeping over to the colony of New Zealand, in which a great deal of English capital is invested, the New Zealand Loan and Mercantile Agency Company having been pulled up suddenly this week."

THR PALL MALL GAZETTE'S VERSION. The Pall Mall Gazette, referring to the Now Zealand Loan and Mercantile Agency Company, says:—" Ic was known in the city by the endearing name of ' the pawnshop;' that during 28 years it has carried on an enormous business in New Zealand and Australia, boing one of the largest importers of colonial wool, beside carrying on a lucrative agency business; that ib has some hundreds of thousands of acres of p istoral property well stocked with sheep, and that its liabilities consisb mainly of advances from other banks, which are covered by wool and other securities." The following is the Pall Mali's version of tho failure :—" Some years ago the company lent large sums of money on sheep runs in Now Zealand and Australia, These large sums have been locked up in some of them for a considerable time, and have not been available for the ordinary commercial business of the company, but the company, ib is stated, has nob been making advances during the past two or three years. After the collapse of the Australian boom, recourse was had to tho bankers, bub owing to the suspension of so many of theso Australian banks facilities in that respect were cut off. The company could not rapidly realize its securities, and in London it could not discount tho acceptances of the suspended banks, which had been among its main props." And this is what the same journal has to to say on one important phase of the affair : —"It is well to state that although at one time tho Bank of Now Zealand was very closely connected with tho company which lias been compelled to suspend, the connection now existing is very slight. We understand that tho Bank is involved in tho suspension to the extent of only one advance which, moreover, is amply secured. Tho suspension is duo rather to the state of affairs in Australia, New Zealand being involved to bub a small extent. The company's banker in the colony was the Bank of New Zealand, but in Melbourne it was the National of Australasia, tho recent failure ot which "partly accounts for tho suspension." As to tho future, one of the directors, in the course of an interview, is reported to have said that, "although the company has suspended payment, there is no doubt that in the course of a few weeks a scheme of re-construction will bo devised and the business set going again, as ib would be foolish and disastrous to wind up so profitable a concern. It is possible," he continued, " that, a small call may have to be made, bub there is no reason to anticipate much difficulty in raising what is necessary. Only about half a million additional capital is likely to be ntjeded to carry on the concorn, and that will possibly be obtainod by a call or by preference shares."

CIRCULAR TO SIIARIiHOI.DKRS. In a circular addressed to all shareholders in the company, tho manager, after intimating tho suspension, says :—"All necessary measures have been taken for the protection of the company's property and maintenance of its connection. A scheme for the resumption of business is in course of preparation, and will be submitted to the shareholders, debenture-holders, and debenture stockholders, at the earliest possible date. lb is confidently anticipated that means will be found to preserve, for tho benefit of all concerned, the valuable business which has for so many years been so successfully carried on." AN INJCniCOUS "INTERVIEW." A long account is published by most of the papers of an " interview " between a Press Association representative and one of t.he Company's directors. Upon this is vertically based the Pall Mall's version of the affair, already quoted. Unfortunately it contains several rather serious errors, and a good deal of annoyance is felt) and expressed by other authorities of the company thab one of their number should have hastily made these statements, which ho could not possibly have verified ; which indeed he had no opportunity of verifying off-hand. It is known thab the " interviewer " went to the House of Commons to seek one of the three members who are also directors of the company, and it is rumoured thab either Sir John Gorsb or Sir James Fergusson was the source whence the enterprising interviewer obtained his dubiously valuable information.

As one instance of grave inaccuracy, I may take the assertion that one cause of stopping payment was that "in London they (the Company) could not discount the acceptance of the suspended banks which had been among their main props." Now I am positively assured upon the highest possible authority that so far from the suspended banks' acceptance being among the " main props "■ of the Now Zealand Loan and Mercantile Agency, the latter company did not hold one of such acceptances. It is thought a great pity that this well meaning but injudicious director did not decline to be interviewed off-hand in the lobbies, and that he did not recognise how important it was that no hasty or inaccurate or unauthorised statements should obtain publicity at such a crisis. The trouble is that to contradict the mistakes in London just now would merely have the effect of suggesting that there were discrepancies in the versions put forth and of casting doubt on the trustworthiness of ail.

ATTITUDE OP THE TRUSTEES. It has been suggested by the Financial Times that the mortgage of tho uncancelled capital to the trustees of the debenture stock is likely to cause the chief trouble in reconstructing the company. The journal in question says : —"Oneof the most notable events in the recent history of the company was the issue in July, 1892, of £550,000 in four per cent, debenture stock. This was specially secured by a mortgage to trustees (the Right Hon. Sir James Fergusson, Bart., Baron Schroder, and Mr. Walpole Greenwell) ' of the whole of tho uncalled capital' amounting bo £3,137,357, and by a floating charge on the undertaking of the company. By the suspension of payment these trustees will be placod in a very delicate position, more particularly as one of them —Sir James Ferguss l —is also a director of tho company. There may be nominally a very large margin between tho amount of the debenture stock specially secured, and that of the uncalled capital mortgaged ; bub until the debenture stock in question is satisfied, the trustees dare nob part with one atom of their security, either as » mortgage or uncalled capital or as a floating charge. It is impossible to say how much may exist of this specially secured debenture stock, but to such an ex ten*! as ib exists, its position appears to ba tirsbclass. It has the first claim oil a not too strong share register, and failing satisfaction therefrom, a floating charge on the general assets. Its holdors, therefore, appear to have the company at their mercy." This may be true to a certain extent, but its practical effect deponds largely upon the attitude assumed by the trustees. I am in a position to state on authority that those gentlemen are acting in a most friendly manner towards the company, and are cordially co-operating with the directors in the movement bo ward re-construction. No difficulty is therefore to be apprehended on this score. Nor is it anticipated that there will be any other insuperable obstacle in the way of re-construction. The feeling in the city is decidedly hopeful. The solid and lucrative character of the company's business, the substantial nature of its

securities and the largeness of its connections are fully recognised, and the prevalent impression among a number of bankers and other leading financiers with whom I have conversed on the subject is that the process of re-construction ought to be effected with a fair degree of comparative ease. THE REASON OF THE STOPPAGE.

It is one of the most remarkable features of the suspension of this great New Zealand institution, by how very narrow a shave this crisis missed being satisfactorily'averted. Only the very initiated were aware last Monday that the company was in immediate and pressing difficulties. The secret ; was well kept, although a sort of uneasy presentiment undoubtedly was abroad that another big "Australian failure was impending." It was not until late in the afternoon that the directors were compelled to abandon all hope of averting suspension. To the last they - had reason to believe they could obtain the requisite facilities. At almost any other time those would have been readily forthcoming, but at that unlucky juncture the institutions which would willingly have come to the rescue were for the moment unable to' do so and so the supreme moment passed irrevocably. The whole cause of the suspension may be summed up in the explanation that the funds immediately needed by the company in London were at the other side of the world, and would not be gob hold of at the precise period when they were wanted. Ib is as if a starving man had abundance of food at his mine on the opposite side of an impassable gulf. The resources were there, but they weren't here when they were imperatively required. And so the company had to suspend payment. The whole difficulty was due to the stoppage of the company's Australian bankers, the National Bank of Australia. This threw all their financial machinery oub of gear, and the customary financial facilities upon which such an institution as the New Zealand Loan and Mercantile Agency necessarily relied were wanting at the time of need. It was fully believed that other banks would come to the rescue and assist the company to tide over the passing difficulty. It was even known that certain banks were quite ready to to do so, and had cabled for the requisite powers. But the obstacle which arose was the fear lest if they rendered this assistance they might be placed in the undesirable position by being unable to afford accommodation which might be required in London by their own customers. Hence the temporary aid which would have averted suspension, had to be refused. Even up to late on Monday afternoon the directors of the New Zealand Loan and Mercantile Agency had no doubt whatever that they would receive a telegram from Australia to tiie effect that everything had been satisfactorily settled, and that favourable arrangements had been made. Bub no such hoped-for intimation came, and as the directors had no alternative but to suspend, whereupon, as a matter of course, the trustees of the debenture stock stepped in to protect the interests of the debenture stockholders, but co-operating in a friendly spirit with the company. A scheme of re-construction has been drafted and was under the consideration of the Board yesterday, bub it is not yet finally decided upon. Ib will, of course, require to receivo the approval of the trustees.

The directors did not finally abandon hope until nearly four p.m. Cable messages were coming to hand all day from Air. T. Russell, in Melbourne, but the drafts offered were nob negotiable in the existing condition of things. The Board had met ab fleven a.m. and had Mien decided not to go on unless their finance could be arranged that afternoon. Some of the large Australian banks were applied to in Melbourne, bub they referred the matter to the head offices in London, where it was seen the attitude was nob favourable. HARON SCHRODER'S ACTION. A new development arose yesterday which may affect the position of the company adversely. Baron Schroder, one of the holders of debenture stock, applied to the Court to have his sacurity enforced, and for a receiver and manager to be appointed. This applies to the permanent, (or longdated) debentures which were issued last year. The preference debentures, including those held by Baron Schroder, are said to amount to £1,300,000 or £1,400,000. The Court made an order accordingly, appointing Mr. Aloxander Young receiver and manager, with liberty to act at once, Baron Schroder undertaking to answer for his receipts and any special powers to be subsequently applied for. The fate of the company now depends entirely upon Baron Schroder and his attitude. If lie assumes a hostile attitude he can undoubtedly exercise a very serious power. If, on the other hand, as is hoped by the directors, he should see his way clear to co-operate cordially with them all may yet) go well in respect of re-construc-tion. Bub it is undeniable thab the Baron's action has placed matters in a less favourable position than before.

THE SCOTCH DEBENTURE-HOLDERS. On the other hand the principal Scotch agents for the New Zealand Loan and Mercantile Agency Company, Messrs. Hamilton, Kinnear, and Beatson havo issued a circular of a hopeful character to the Scottish holders of debenture stock, debentures, and guaranteed mortgages to the effect that their clients are entirely securer]. The circular is as follows: " Wo regret to say that we have received from the company notice that in consequent of the financial position arising out of the recent suspension of several banks in Australia they are compelled temporarily to suspend business pending the preparation of a scheme of re-con-struction. This has been entirely and up to the last moment unexpected by us, and one of our partners has gone to London to obtain information and to attend to your interests. We feel confident! that debenture-holders are fully secured by the assets of the company, by the reserve fund, and by the unpaid capital of £3,1i>7,355, largely he(d in Britain, which is the limit of the Company's borrowing power on debentures, while holders of guaranteed mortgages have also the security of the lands specially mortgager 1 We think you need feel no anxiety that you will sustain any loss of either principal or interest."

OEN'KRAI, NOTKS. . It must be remembered, however, that Baron Schroder admittedly has the first claim, and as I have said, much will depend on his action as to whether the company can or can not be re-constructed.

A very nasty attack on Mr. Larkworthy and Mr. Thomas Russell is made by the Financial Times in connection with the suspension. Much alarm is naturally felt by the shareholders in view of the possibility of the whole unpaid capital being called up. As only £2 10s is paid up on the majority of the shares, which are of £'25 each, that leaves the very large sum of £22 10s per share still to be called up, and to many people this would mean absolute ruin, as absolute as if the liability were unlimited. Ib should be clearly understood that the Bank of New Zealand has no longer any connection except a purely legitimate banking one with the suspended company, and that its advances to the company, which are under £250,000, are more than doubly covered by substantial security. The Bank of New Zealand is all right therefore, and quite safe. A general feeling prevails that no pains ought to be spared to rehabilitate this important institution, and that the magnificent business which it has built up during so long a series of years ought nob to bo needlessly sacrificed.

The body of Harry Dignan, who lost his life in the Tairua River aboub three and a-half mouths ago, was found on Monday. Oar advertising columns announce a recital of sacred music in All Saints' Church this evening at eight o'clock. Great pains have been taken, as usual, to present a programme to gratify all lovers of sacred music. In addition to many beautiful items by the choir there will be songs by Madame Daw, Messrs. Martin and Stebbitig, and Sullivan's lovely song "The Lost Chord" will be played by Mr. Tom Adams (of Adams's Band) on the silver cornet. Congregational singing will have its turn, as two favourite hymns will be sung accompanied by organ, cornet, and sidedrums. Tenders are invited for alterations to boathouse Auckland Rowing Club. The annual show of the Auckland Provincial Agricultural Association will be held on November 17 and 18 next. _ The seventeenth of the aeries of People's Papular Concerts will be given to-night in the City Hall.